Keeping it in the family?
The joys and the challenges of corporate and family-owned drinks businesses
The Riding House Café, London W1W
The drinks industry boasts its fair share of family-run businesses, as well as others which have made the sometimes challenging transition from family ownership to a corporate structure. In May, Cesium Group hosted its third round table discussion on industry trends. Inviting drinks industry leaders with experience spanning both sides of the family and corporate divide to debate the rewards and challenges of each model.
The lively discussion covered emotional aspects such as character, values and family pride, as well as the more pragmatic elements such as operational rigour, corporate governance and brand management. At the heart of the debate was a key issue; balancing the short-term returns expected by corporate shareholders against long-term family investment in the brand’s legacy.
- Guy Lawrence CEO, Jägermeister
- Eugene Walsh Ex-MD Imperial Tobacco/Entrepreneur
- Steven Sturgeon Group Marketing Director, Distell
- Simon Doyle Managing Director, Concha y Toro
- Matt Boffey Partner, London Strategy Unit
- David Cunningham Programme Director, There’s A Beer For That
- Alison Daymond HR Director, Cesium Group
- Paul Haslam Managing Director, Cesium Group
- Monika Zalaite Account Director, creativebrief
At what stage do family businesses become corporate entities? How and why does this transition occur?
It was widely agreed that the fundamentals of a successful family business lie in a shared set of values, purpose and ethos. However, as later generations of the family take the helm, the drive and vision of the founders may become diluted. This is where professional management can step in to pick up the baton. If the fundamental brand values are clear, and control is properly transferred to the management team, the company has more chance of succeeding commercially while remaining true to its roots – but such a change needs to be considered carefully.
Do family businesses have an advantage around brand building over a longer time frame?
For the most part, family businesses are less focused on short-term gains and more confident about investing for the future. Planting vineyards or orchards, which take years to become productive, “is something that families can champion, where a corporate would expect a return next week.” Another participant made the point that although the media focuses on the modern breed of craft brewers, “craft is actually less than 2% of the market, whereas regional brewers have been growing the market considerably for some time.” The best corporate businesses recognise the advantages that heritage, terroir and family name bring to a business. “There is power in brands which have the culture of the founder or family at their heart, and which make those values relevant to consumers.
How is corporate governance effected by ownership, are family businesses as well governed as public companies, or better?
As one participant put it, “family businesses benefit from the safety of their network.” The freedom to take decisions in the knowledge that failure will not be the end of one’s career, is a major incentive to “follow your gut”. Additionally, family members are able to share their thoughts honestly in a way that corporate boardrooms can’t match. In contrast, corporate decision-making can be dominated by decisions that are either “very calculated or very easy to justify”. In these circumstances, creativity is compromised or even stifled. This means that one driver for corporate acquisition of family businesses is that “corporate businesses are desperately trying to tap into that small business gold. They are not buying a management team, they are buying innovation.”
Another key difference identified is that at senior level the gender balance is often more positive in family businesses. “Public companies’ management teams tend to be predominantly male. There’s better gender representation within families, and if you look at those companies that are making well-informed decisions about risk, it tends to be those with a greater representation of females on the board.”
Emotional investment vs corporate rigour
The group agreed that family businesses are less likely to compromise on quality in order to reduce the cost. However, emotional attachment to the family name may lead to feuds or irrational decisions. In contrast, the absence of emotional involvement is a strength of the corporate business, allowing them to be more objective.
While this outside perspective has major benefits, the long-term loyalty of corporate management may not be as strong. “Responsibility is the value of the management, whereas duty and pride are the value of the family. When combined, they pave the ground for success.”
Why does the drinks industry have such a concentration of family-owned businesses and what have been the factors behind their longevity?
Many drinks businesses started for very pragmatic reasons: alcohol was produced from whatever was at hand, such as potatoes, grain and fruit. People who were land-rich but cash-poor tried their hand at making alcohol for self-consumption or because it was much cheaper than buying it. Over time, demand grew and domestic production turned into family businesses.
Historically, while governments closed or nationalised many businesses, drink companies have tended to be an exception. Alcohol businesses are very resilient to recession, and additionally “a family business has a survivor bias; the businesses that are still around generations later are the best ones.” We all learn from experience, and a family business is able to benefit from that long term perspective.
The participants agreed that key traits of successful brands are passion, authenticity and heritage. Having said this, “Family businesses need to have strong emotional intelligence in order to recognise when they need support from the outside management.” Family businesses survive when they respect their history, while at the same time being managed responsibly. The advantage of the family safety net needs to be balanced with sound corporate expertise. “When you get to the point where your market’s outgrown your family, you’re driven to bring in other expertise because you want to see the company expand.”
Iconic brands are usually born out of the passion to create a high quality product. As one participant said, “Today’s trendy craft brewer may be the generational family brewer of the future. They are all entrepreneurs, believing that product, quality and taste are the starting point.”